Ann Battle MacherasVice President, Regional Research and Economic EducationResearch Department

National and Virginia Economic UpdateSoutheast Fairfax Development Corporationand Mount Vernon-Lee Chamber of Commerce2017 Economic Outlook SummitApril 6, 2017

The views and opinions expressed herein are those of the author. They do not represent an official position of the Federal Reserve Bank of Richmond or the Federal Reserve System.

Overview• National Economic Trends

– Gross Domestic Product– Productivity– Labor Force Participation– Employment Growth and Unemployment

• Virginia Economic Overview– Regional Growth– Labor Market– Metro Area Growth– Industry Growth

2

National Economic Trends

3

-10

-8

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

% Change, SAAR

Q4: 2016US: 2.1%

U.S. Real Gross Domestic Product

4

Source: Bureau of Economic Analysis via Haver Analytics

Real Gross Domestic Product

3.5 3.0

-4.1

12.0

-4.5

2.13.5

9.6

-1.9

1.9

-10

-5

0

5

10

15

20

25

30

-6

-4

-2

0

2

4

6

8

10

12

14

Real GDP PCE ResidentialInvestment

NonresidentialInvestment:Structures

NonresidentialInvestment:Equipment

% Change, SAAR Q3-16Q4-16

5

Source: Bureau of Economic Analysis/Haver Analytics

Decomposition of Real GDP

6Source: Bureau of Economic Analysis/Haver Analytics

Note: Productivity is calculated as real GDP per employee, from the Household Survey.

0

1

2

3

4

5

0

1

2

3

4

5

1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

10-year annual growth rate

GDP

HouseholdEmployment

Productivity

Uncertainty of Future Productivity Growth

7

Source: John Fernald, FRBSF, NABE Policy Conference, March 2017

Labor Productivity – Nonfarm Business

-1

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

YoY % Chg

Post-War Average: 2.3

Q4 2016US: 1.0%

Source: Bureau of Labor Statistics via Haver Analytics

8

Slower Labor Force Growth Expected

9

Source: John Fernald, FRBSF, NABE Policy Conference, March 2017

Labor Force Participation

10

Source: Bureau of Labor Statistics via Haver Analytics

52

54

56

58

60

62

64

66

68

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Percent of Population

February 2017US: 63%

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average Monthly Change, Thous.

Total Employment Growth

Monthly ChangeFebruary: 235January: 238

December: 155

11

Source: Bureau of Labor Statistics/Haver Analytics

Unemployment Rate

Source: Bureau of Labor Statistics/Haver Analytics

0

1

2

3

4

5

6

7

8

9

10

11

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Percent

February 2017US: 4.7%

12

Virginia Economic Overview

13

20

25

30

35

40

45

50

55

60

65

70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

3-m

onth

ave

rage

Richmond Manufacturing Survey (Left Axis) ISM Manufacturing (Right Axis)

Richmond Manufacturing Survey and ISM Manufacturing Survey

Manufacturing Activity: Richmond District

14

Richmond ISMMarch: 22 57.2February: 17 57.7Jan: 12 56.0

Source: Federal Reserve Bank of Richmond, Institute for Supply Management via Haver Analytics

Surveys of Nonmanufacturing Activity

Source: The Federal Reserve Bank of Richmond, Institute of Supply Managers

35

40

45

50

55

60

65

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

3-m

onth

ave

rage

Richmond Service Sector Survey (Left Axis) ISM Nonmanufacturing (Right Axis)

Richmond Service Sector Survey and ISM Nonmanufacturing Survey

(Current index) Richmond ISM NonmfgMarch 9 --

February 15 57.6January 15 56.5

15

Virginia Employment Growth

-6

-5

-4

-3

-2

-1

0

1

2

3

4

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

YoY % Chg (SA) U.S.Virginia

February 2017US: 1.6%VA: 1.4%

16

Source: Bureau of Labor Statistics/Haver Analytics

MSA Payroll Employment Growth in Virginia

2.9

2.7

2.2

1.9

1.6

1.4

1.3

1.2

0.9

0.9

0.6

0 1 2 3 4

Charlottesville

Harrisonburg

Northern Virginia

Winchester

US

Virginia

Blacksburg

Roanoke

Lynchburg

Richmond

Virginia Beach

YoY% Change (SA)

February 2017

17

Source: Bureau of Labor Statistics/Haver Analytics

Virginia Industry Growth

1.6

-4.2

3.3

0.1

1.0

-0.5

2.3

3.0

2.4

2.0

1.0

0.9

1.4

-2.5

-0.7

-0.4

1.2

-4.0

2.6

2.3

2.8

2.0

1.1

0.7

-5 -4 -3 -2 -1 0 1 2 3 4

Total

Natural Resources & Mining

Construction

Manufacturing

Trade, Transportation & Utilities

Information

Financial Activities

Professional & Business Services

Education & Health Services

Leisure & Hospitality

Other Services

Government

YoY % Chg (SA)

February 2017

U.S.Virginia

18

Source: Bureau of Labor Statistics/Haver Analytics

Virginia Unemployment Rate

0

1

2

3

4

5

6

7

8

9

10

11

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Percent U.S.Virginia

February 2017US: 4.7%VA: 3.9%

19

Source: Bureau of Labor Statistics/Haver Analytics

Virginia Labor Force Participation Rate

20

58

59

60

61

62

63

64

65

66

67

68

69

70

71

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Percent U.S.Virginia

Source: Bureau of Labor Statistics/Haver Analytics

February 2017US: 63.0%VA: 65.2%

Virginia Population and Labor Force

21

Source: Bureau of Labor Statistics, Census Bureau/Haver Analytics

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1984 1988 1992 1996 2000 2004 2008 2012 2016

Annual % Change, 4 year moving avg.

Labor Force

Population 16-64

Summary

22

• Economy continues on moderate growth path for reasons related to growth in the labor force and productivity

• Productivity growth has been disappointing relative to previous periods

• Labor force and population growth are expected to slow in the coming decades

• Virginia’s overall employment growth is comparable to the U.S., though some industry sectors are not performing as well

• Virginia’s labor force participation rate shows a similar trend to the U.S. (as does population)